JPMorgan Chase & Co., the second- biggest U.S. bank by assets, agreed to pay Florida $25 million to settle allegations it sold unregistered securities to a state-run municipal money-market fund that suffered a run on deposits because it held defaulted debt.
Participants in Florida’s Local Government Investment Pool will get $23 million of the settlement to reimburse them for losses in 2007 on asset-backed securities, some of which were sold by JPMorgan to the fund’s overseer, the State Board of Administration, Attorney General Bill McCollum said today in a statement. The rest will pay fines and related costs, he said.
“This settlement is part of the state’s continued efforts to secure the maximum valuation of investment securities held by the SBA,” McCollum said from Tallahassee, the capital.
Assets in what was once the largest U.S. manager of municipal cash plunged from $27 billion in November 2007 to about $6.9 billion this week after it said that it held defaulted mortgage-backed bonds. A rush by municipalities to pull out money forced the fund to freeze withdrawals, leaving some communities without cash to pay workers and other costs.
The fund, since renamed Florida Prime, was reorganized to segregate the defaulted securities under a plan from New York- based BlackRock Inc., the biggest publicly traded U.S. money manager. The best-quality securities were set aside as Fund A and resumed paying withdrawals.
About $2 billion of illiquid and defaulted debt was put into Fund B and closed to transactions. As Fund B securities paid interest and matured, proceeds were deposited into Fund A. About $1.65 billion has been distributed from Fund B, or about 82 percent of the original principal, the state board said today in a statement about the proceeds of the JPMorgan agreement.
“The settlement is a fair, reasonable and a responsible result for the participants,” Ash Williams, the state board’s executive director, said in the statement from McCollum.
McCollum said the New York-based bank’s JPMorgan Securities LLC unit had violated Florida law by selling unregistered bonds to the fund.
JPMorgan “desires to resolve this matter to avoid the burden and cost of any litigation, and accordingly does not admit or deny” the findings of Florida’s investigation, the company said in the settlement agreement.
“We are pleased that both parties can now move past this issue and we look forward to continuing our service to the state of Florida,” JPMorgan said in a statement e-mailed from the office of its spokesman, Joe Evangelisti, in New York.
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